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Kevin O'Sullivan delivered the presentation at the Competing to Win: Financial and Operational Management Summit. Presented by Informa and the Financial Review. A review of the financial and operational management of higher education institutions. For more information on the event please visit: http://bit.ly/1v7HwNm
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November 2014
Transformation, superannuation and higher education
Kevin O’Sullivan
Chief Executive Officer, UniSuper
Disclaimer
This presentation includes general information and general advice which may not
be suited to your circumstances, as they have not been taken into account.
We will be outlining some of UniSuper’s products, holdings and views on the
market. These can change at any time.
Details of strategies and particular companies which UniSuper invests in are
provided for informational purposes only.
This is not advice and we are not recommending these for inclusion in personal
portfolios, as they may not be suited to your overall circumstances.
Transformation, superannuation & higher education 2
Agenda
Transformation, superannuation & higher education 3
Current status of super for university employees
A bit about UniSuper
Provision of defined benefit superannuation
Changes within the super industry and impact on universities and their
employees
Changes within universities and UniSuper’s response (or impact on it)
Status of super for universities and their employees
Transformation, superannuation & higher education 4
Super contributions (% of pay): Employer Employee
Casuals SG (9.5%) -
Non-casuals 17% 7%
Vast majority of employees join UniSuper
Non casuals default into Defined Benefits
− Can opt to move to Accumulation in first 24 months
About UniSuper
Greater retirement outcomes for
members from the Higher Education
& Research sector
$45bn funds under management
& 440,000+ member accounts* – one
of 10 largest in Australia
In-house asset management
& administration
Over 500 staff
Range of investment options
& valuable defined benefits
Low fees
5*At October 2014
Transformation, superannuation & higher education
Members and assets
Transformation, superannuation & higher education 6
No of members Assets ($ Billion)
Defined Benefit 78,000 16
Accumulation
Non-casual actives
Casual actives
‘Inactives’
20,000
144,000
179,000
24
Pensions 19,000 5
Total 440,000+ member accounts 45
Relative performance to June 2014
7
Past performance is not an indicator of future performance.
7
Option 1 year 3 years 5 years 10 years
High Growth Q2 Q1 Q1 Q1
Growth Q1 Q1 Q2 Q1
Balanced Q1 Q1 Q1 Q1
Conservative Balanced Q1 Q1 Q1 Q1
Capital Stable Q1 Q1 Q1 Q1
Australian Shares Q2 Q1 Q2 n.a.
International Shares Q1 Q2 Q1 n.a.
Transformation, superannuation & higher education
UniSuper’s low fees
8 8
$50,000 balance $250,000 balance
Total annual fees for Balanced
Option$420 $1,640
Relative to Balanced options of
other major super funds *14th / 100 8th / 100
* Chant West April 2014 data
Transformation, superannuation & higher education
Transformation, superannuation & higher education 9
Provision of Defined Benefit Superannuation
Closure of DB funds over time
Transformation, superannuation & higher education 10
Many reasons for closures:
Funding risk
Accounting implications
Super Guarantee and legislative momentum
Do these apply to universities?
Employers have fixed contributions, but …
Transformation, superannuation & higher education 11
This is well manageable, with:
Strong investment management of DB assets (liability aware, fortress
assets)
DBD portfolio features ‘fortress assets’
12
Karrinyup
Shopping Centre
APA Karrinyup Shopping Centre Eastern Distributor
Sydney AirportBrisbane AirportVictorian Comprehensive
Cancer Centre
Transformation, superannuation & higher education
Employers have fixed contributions, but …
This is well manageable, with:
Strong investment management of DB assets (liability aware, fortress
assets)
Prudent conservatism
Typically long periods of membership
No need for short term rectification of shortfalls
Transformation, superannuation & higher education 13
Employers have fixed contributions, but …
Transformation, superannuation & higher education 14
This is well manageable, with:
Strong investment management of DB assets (liability aware, fortress
assets)
Prudent conservatism
Typically long periods of membership
No need for short term rectification of shortfalls
And members receive two key advantages of Defined Benefit arrangements …
Protection & predictability
15
Protection from investment market downturns
During and post one of the worst economic downturns such as the GFC
– defined benefits were paid in full
Increased ability to predict future benefits
Assists retirement planning as a salary-based formula is not directly exposed
to market downturns
No DBD member has ever lost any capital
Transformation, superannuation & higher education
Change to accruals from 1 January 2015
Expected rate of future investment earnings is much lower
than in the past
Expected cost of future accruals (~22.5% of salaries)
exceeds
Future DB contributions (21% of salaries)
As funding levels improve, DBD investment strategy will
become more conservative
Transformation, superannuation & higher education 16
Transformation, superannuation & higher education 17
Changes within the superannuation industry and their impact on universities & their employees
Super industry changes
Transformation, superannuation & higher education 18
Legislative change (MySuper, Stronger Super, FOFA, …)
Super industry changes
Transformation, superannuation & higher education 19
Legislative change (MySuper, Stronger Super, FOFA, …)
Digital revolution
Greater focus on fees
Provision of financial advice
Multiple ‘digital projects’ underway
Transformation, superannuation & higher education 20
Improved electronic uploading of
super details from universities’
payroll files into UniSuper’s
systems
Greater straight through
processing
All will deliver significant efficiency
gains and cost reductions
Recent enhancements for members
Member statement enhancementsBenefit projections
Showing benefits as income amounts
Online tools and calculators (self-help):Retirement adequacy
Pension income
Transition to Retirement
Investment
Contributions
21Transformation, superannuation & higher education
More face to face advisers
Transformation, superannuation & higher education 22
Better promotion of our
unconflicted advice model
Strong growth in number of
members receiving financial
advice
Increased number of advisers
Also introduced on campus
consultants
Super industry changes
Transformation, superannuation & higher education 23
Legislative change (MySuper, Stronger Super, FOFA, …)
Digital revolution
Greater focus on fees
Provision of financial advice
Greater member activism
Super industry changes
Transformation, superannuation & higher education 24
Legislative change (MySuper, Stronger Super, FOFA, …)
Digital revolution
Greater focus on fees
Provision of financial advice
Greater member activism
Managing number of insurance claims
Recent insurance changes
Moved to external insurance cover for Accumulation members, with
only minor increases, and in some cases, decreases in premiums
Introduced greater flexibility for Accumulation 2 members:
−Can opt out of insurance cover
−Can increase or decrease their cover
−Can mix and match type of cover that’s best for them
25 25Transformation, superannuation & higher education
Super industry changes
Transformation, superannuation & higher education 26
Legislative change (MySuper, Stronger Super, FOFA, …)
Digital revolution
Greater focus on fees
Provision of financial advice
Greater member activism
Managing insurance claims experience
Growth in SMSFs
Super industry changes
Transformation, superannuation & higher education 27
Legislative change (MySuper, Stronger Super, FOFA, …)
Digital revolution
Greater focus on fees
Provision of financial advice
Greater member activism
Managing insurance claims experience
Growth in SMSFs
Drive for improved post-retirement solutions
Super industry changes
Transformation, superannuation & higher education 28
Legislative change (MySuper, Stronger Super, FOFA, …)
Digital revolution
Greater focus on fees
Provision of financial advice
Greater member activism
Managing insurance claims experience
Growth in SMSFs
Drive for improved post-retirement solutions
Financial System Inquiry
Transformation, superannuation & higher education 29
Changes in higher education and UniSuper’s response (or impact on it)
Relevant changes in higher education
Transformation, superannuation & higher education 30
Greater casualisation of workforce
Casuals within UniSuper
Casuals are members of the Accumulation Division
Over 75,000 members with <$1,500 in their account
With changes in legislation (MySuper), small balances can now be eroded
by fees ($115 p.a.)
We’re implementing a solution to transfer low account balances to an
“Eligible Rollover Fund” (ERF)
We’ll sweep low account balances regularly
Greater casualisation could reduce number of new non-casual members
joining the Defined Benefit Division
Transformation, superannuation & higher education 31
Relevant changes in higher education
Transformation, superannuation & higher education 32
Greater casualisation of workforce
Reduced Government funding
Relevant changes in higher education
Transformation, superannuation & higher education 33
Greater casualisation of workforce
Reduced Government funding
Greater focus on ESG
What our members say …
Transformation, superannuation & higher education 34
Transformation, superannuation & higher education 35
What our members say …
What our members say …
Transformation, superannuation & higher education 36
What some of our members want …
Transformation, superannuation & higher education 37
15 investment choice options
Transformation, superannuation & higher education 38
Fiduciary Duty
UniSuper’s broad ESG approach
Active ownershipInvestment specific
activitiesCollaboration
Proxy voting
Company
engagement
Member
engagement
Company reviews
Fund manager
reviews
Engagement with
specific ‘activist’
parties
Working with other
investors (e.g.
peers)
All ‘stakeholders’
Government &
regulators
Transformation, superannuation & higher education 39
Additional actions UniSuper has taken
• Sustainable Growth option launched2001
• Sustainable Balanced option launched2007
• Divested from tobacco companies2011
• Global Environmental Opportunities option launched2012
• Cornerstone investor in the first ever “green bond” issue in Australia
2014
• Divested from fossil fuel exploration and production, weapons, gambling and alcohol across our sustainable options
2014
Transformation, superannuation & higher education 40
What criteria should the Trustee consider in responding?
Investment fundamentals have to be foremost
Can also consider other criteria – but only if to do so is in members’
financial interests
There is no clearly established case for broad scale divestment
Transformation, superannuation & higher education 41
We also come to the attention of non-members
Transformation, superannuation & higher education 42
Relevant changes in higher education
Transformation, superannuation & higher education 43
Greater casualisation of workforce
Reduced Government funding
Greater focus on ESG
Greater demand for flexibility
Relevant changes in higher education
Transformation, superannuation & higher education 44
Greater casualisation of workforce
Reduced Government funding
Greater focus on ESG
Greater demand for flexibility
Lack of awareness of super among employees
On Campus Consultants
Transformation, superannuation & higher education 45
Ten On Campus Consultants (OCCs) at 20 universities
Services include on-boarding new staff, seminars, product information
(DB), general advice and rollover assistance
Positive feedback from uni representatives and members
Currently trialling video-conferencing for regional areas
We plan to have up to 18 OCCs by the end of 2015
In summary
Transformation, superannuation & higher education 46
Change continues apace both in the higher education sector and in the
super industry
UniSuper will continue to work with employers in the higher education
sector to deliver services and products to adapt accordingly
Thank you
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